Positive feasibility for Verde prompts Bema to seek financing

With a final feasibility study on the Verde deposit now complete, Bema Gold (TSE) is concentrating on obtaining financing for the Chilean gold project. The estimated capital cost for the open pit, heap leach mine is US$101 million plus an additional US$14 million for working capital. The Verde is one in a series of porphyry gold deposits on the company’s 50% owned Refugio property in northern Chile.

The feasibility study established a base-case minable reserve of 112 million tons grading 0.030 oz. gold per ton at a strip ratio of about 1-to-1.

Chairman Clive Johnson points out that the base-case reserve is part of a larger reserve totalling 204 million tons grading 0.026 oz. gold at an over-all strip ratio of 0.9-to-1. He also noted that the larger reserve figure was by no means the limit, as the deposit remains open to depth.

Johnson said the coming few months will be critical as the company attempts to raise US$75 million through a gold loan.

Johnson appears optimistic, but stressed he is well aware the company is not an “American Barrick” looking for funding for a project in Nevada, but a junior looking for funding in Chile.

As a result, the company has targeted institutions that would be open to this type of financing. Johnson said one institution is now in the process of a detailed audit of the company’s final feasibility study with the view of becoming the lead bank in a syndicate for a gold loan. The audit is being conducted by a major engineering firm, although no names have been released.

Johnson also countered various rumors and opinions in circulation regarding the leachability of the deposit’s ore at high elevation. With an elevation of about 16,000 ft. above sea level, some analysts have questioned the company’s estimated gold recoveries.

Johnson said Mineral Resources Development, the consulting firm that prepared the preliminary and final feasibility studies, did numerous column tests on Verde ore both on site and at sea level to determine if there was an appreciable loss of recovery as a result of the altitude.

He said the study found no difference in recoveries or leaching rates and in fact found cyanide consumption was much less on site. Overall gold recoveries are expected to average about 66% over the life of the mine.

At a production rate of 33,000 tons per day, the mine would produce an average of 233,000 oz. gold per year over the 9.4-year life of the base-case scenario, at an average cash cost of US$189 per oz.

Johnson said the production rate would be somewhat higher in the first few years due to higher-grade material. The first year of production is projected to produce about 256,000 oz. gold at a cost of US$148 per oz. Gold production drops to 250,000 oz. in the second year with the average cash cost increasing to US$168.

At a gold price of US$375 per oz., the project has an estimated payback period of 2.7 years. At US$350 per oz. gold, the payback increases to 3.2 years.

In conjunction with beginning negotiations for a US$75-million gold loan, the company has requested bids from several major construction firms for engineering, procurement and construction management with the view of obtaining an construction guarantee. Johnson said a guarantee would make financing much easier.

Subject to obtaining project financing, Bema plans to begin construction at the deposit in early 1992, with full-scale production scheduled for early 1993.

Although he is optimistic a financing deal can be completed, Johnson said other alternatives will be considered if necessary. For example, the company would not rule out a deal with a major mining company, whether in the form of a partnership or investment in Bema, or an outright purchase of the company’s 50% interest.

Johnson also said he would not rule out a takeover of Bema as a possibility, provided it was in the best interest of shareholders.